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The Daily Magic Formula Stock for 03/13/2009 is Crane Co. According to the Magic Formula Investing Web Site, the ebit yield is 26% and the EBIT ROIC is 25-50%.

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Since our founding in 1855, when R.T. Crane resolved â€śto conduct my business in the strictest honesty and fairness; to avoid all deception and trickery; to deal fairly with both customers and competitors; to be liberal and just toward employees, and to put my whole mind upon the business,â€ť we have been committed to the highest standards of business conduct.

Our strategy is to grow the earnings of niche businesses with leading market shares, acquire businesses that offer strategic fits with existing businesses, aggressively pursue operational and strategic linkages among our businesses, build a performance culture that stresses continuous improvement, continue to attract and retain a committed management team whose interests are directly aligned with those of our shareholders and maintain a focused, efficient corporate structure.

We use a comprehensive set of business processes and operational excellence tools that we call the Crane Business System to drive continuous improvement throughout our businesses. Beginning with a core value of integrity, the Crane Business System incorporates â€śVoice of the Customerâ€ť teachings (specific processes designed to capture our customersâ€™ requirements), value stream analysis linking customers and suppliers with our production cells, prescriptive and uniform visual management techniques and a broad range of operational excellence tools into a disciplined strategy deployment process that drives strong financial results by focusing on continuously improving safety, quality, delivery and cost.

We employ approximately 12,000 people in North and South America, Europe, the Middle East, Asia and Australia. Revenues from outside the United States were 39.8% and 37.8% in 2008 and 2007, respectively.

Business Segments

For additional information on recent business developments and other information about us and our business, you should refer to the information set forth under the captions, â€śManagementâ€™s Discussion and Analysis of Financial Condition and Results of Operations,â€ť in Part II, Item 7 of this report, as well as in Part II, Item 8 under Note 13, â€śSegment Information,â€ť to the Consolidated Financial Statements for sales, operating profit and assets employed by each segment.

Aerospace & Electronics

The Aerospace & Electronics segment has two groups, the Aerospace Group and the Electronics Group. In 2008, Aircraft Electrical Power (a portion of the Eldec business) was reclassified from the Aerospace Group to the Electronics Group as part of Power Solutions. The Aerospace Groupâ€™s products are organized into the following solution sets which are designed, manufactured and sold under their respective brand names: Landing Systems (Hydro-Aire), Sensing and Utility Systems (Eldec), Fluid Management (Lear Romec) and Cabin Systems (P.L. Porter). The Electronics Group products are organized into the following solution sets: Power Solutions (Eldec, Keltec, Interpoint), Microwave Systems (Signal Technology), Electronic Manufacturing Services (General Technology) and Microelectronics (Interpoint).

The Landing Systems solution set includes aircraft brake control and anti-skid systems, including electro-hydraulic servo valves and manifolds, embedded software and rugged electronic controls, hydraulic control valves, landing gear sensors and fuel pumps as original equipment to the commercial transport, business, regional, general aviation, military and government aerospace, repair and overhaul markets. This solution set also includes similar systems for the retrofit of aircraft with improved systems as well as replacement parts for systems installed as original equipment by aircraft manufacturers. All of these solution sets are proprietary to us and are custom designed to the requirements and specifications of the aircraft manufacturer or program contractor. These systems and replacement parts are sold directly to aircraft manufacturers, Tier 1 integrators (a company who makes products specifically for one of the aircraft manufacturers), airlines, governments and aircraft maintenance and overhaul companies. Manufacturing for Hydro-Aire is located in Burbank, California.

The Sensing and Utility Systems solution set includes custom position indication and control systems, proximity sensors, pressure sensors and true mass fuel flow meters for the commercial business, regional and general aviation, military, repair and overhaul and electronics markets. These products are custom designed for specific aircraft to meet technically demanding requirements of the aerospace industry. Our Sensing and Utility Systems products are manufactured at facilities in Lynnwood, Washington; Daventry and Northants, England and Bron, France.

Our Fluid Management solution set includes lubrication and fuel pumps for aircraft and radar cooling systems for the commercial and military aerospace industries. It also includes fuel boost and transfer pumps for commuter and business aircraft. Our Fluid Management solutions are manufactured at a facility located in Elyria, Ohio.

Our Cabin Systems solution set includes motion control products for airline seating. We hold leading positions in both electromechanical actuation and hydraulic/mechanical actuation for aircraft seating, selling directly to seat manufacturers and to the airlines. Our Cabin Systems solutions are primarily manufactured in Burbank, California.

Our Power Solutions solution set includes standard and custom power converters and custom miniature (hybrid) electronic circuits for applications across various markets including commercial, space and military aerospace and fiber optics. Facilities are located in Redmond and Lynnwood, Washington; Ft. Walton Beach, Florida; Daventry, England and Kaohsiung, Taiwan.

Our Microwave Systems solution set includes sophisticated electronic radio frequency components and subsystems. These products are used in defense electronics applications that include radar, electronic warfare suites, communications systems and data links. We supply many U.S. Department of Defense prime contractors and foreign allied defense organizations with products that enable missile seekers and guidance systems, aircraft sensors for tactical and intelligence applications, surveillance and reconnaissance missions, communications and self-protect capabilities for naval vessels, sensors and communications capability on unmanned aerial systems and applications for mounted and dismounted land combat troops. Facilities are located in Beverly, Massachusetts and Chandler, Arizona.

The Aerospace & Electronics segment employed approximately 3,100 people and had assets of $472 million at December 31, 2008. The order backlog totaled $418.4 million and $392.8 million at December 31, 2008 and 2007, respectively.

Engineered Materials

The Engineered Materials segment is largely comprised of the Crane Composites fiberglass-reinforced plastic panel business. The segment also includes the Polyflon business.

Noble Composites, Inc. (â€śNobleâ€ť) was acquired in September 2006 and during 2007, was integrated into Crane Composites. Noble specializes in the manufacture and sale of premium, high-gloss finished composite panels used by recreational vehicle manufacturers. Nobleâ€™s manufacturing facility is located in Goshen, Indiana. In September 2007, we acquired the composite panel business of Owens Corning, which produces high gloss fiberglass-reinforced plastic panels used by manufacturers of recreational vehicles. The acquired business was integrated into the Noble business during 2008.

Polyflon is a manufacturer of specialty components and materials, primarily microwave substrates utilized in antenna applications. Polyflon is located in Norwalk, Connecticut.

The Engineered Materials segment employed approximately 700 people and had assets of $271 million at December 31, 2008. The order backlog totaled $6.9 million and $14.8 million at December 31, 2008 and 2007, respectively.

Merchandising Systems

The Merchandising Systems segment is divided into two groups, Vending Solutions and Payment Solutions, both of which were significantly expanded in 2006 with our investment of over $200 million for the acquisitions of four complementary businesses.

Vending Solutions includes Dixie-Narco Inc. (â€śDixie-Narcoâ€ť) and Automatic Products International (â€śAPâ€ť) (two businesses we acquired in 2006), National Vendors, GPL, Stentorfield and Streamware. These businesses, which are primarily engaged in the design and manufacture of vending equipment and related solutions, create customer value through innovation, reliability, durability and reduced cost of ownership. Our products are sold to vending operators and food and beverage companies throughout the world. Vending Solutions has leading positions in both the direct and indirect distribution channels. Streamware provides vending management software to help customers operate their businesses more profitably, become more competitive and free cash for continued business investment. Major production facilities for Vending Solutions are located in St. Louis, Missouri; Williston, South Carolina and Chippenham, England.

Payment Solutions includes National Rejectors (â€śNRIâ€ť), which makes coin changers and validators, and two businesses acquired in 2006, Telequip Corporation (â€śTelequipâ€ť) and CashCode Co. Inc. (â€śCashCodeâ€ť). With the acquisition of these two businesses, Crane is a full-line supplier of high technology payment systems products. NRI is headquartered in Buxtehude, Germany; CashCode is in Concord, Ontario, Canada and Kiev, Ukraine and Telequip is located in Salem, New Hampshire.

The Merchandising Systems segment employed approximately 1,800 people and had assets of $302 million at December 31, 2008. Order backlog totaled $23.4 million and $34.1 million at December 31, 2008 and 2007, respectively.

Fluid Handling

The Fluid Handling segment consists of the Crane Valve Group (â€śValve Groupâ€ť), Crane Pumps & Systems and Crane Supply. In 2007, the Valve Group aligned its business units as follows: Crane ChemPharma Flow Solutions, Crane Energy Flow Solutions, Building Services & Utilities (formerly, â€śCrane Group UKâ€ť) and Crane Valve Services. This alignment provides greater focus on the chemical, pharmaceutical, oil, gas, power, building services and utilities and nuclear power end markets.

Friedrich Krombach GmbH & Company KG Armaturenwerke and Krombach International GmbH, (â€śKrombachâ€ť) were acquired in December 2008 and will be integrated into our Crane Energy Flow Solutions business unit. Krombach manufactures specialty valve flow solutions for the power, oil and gas, and chemical markets which complement our product offering in our global power and energy infrastructure business, particularly for larger diameter, highly-engineered valves. In addition to Krombachâ€™s manufacturing and headquarters location in Germany, Krombach currently has foundry, machining and assembly facilities in Slovenia and China.

Delta Fluid Products Limited (â€śDeltaâ€ť) was acquired in September 2008 and is being integrated into our Building Services & Utilities business unit. Delta designs and manufactures products for the natural gas and building services markets which are complementary to Craneâ€™s Building Services & Utilities product lines. This acquisition will broaden our product offering and will strengthen our existing business. Deltaâ€™s office and manufacturing operation is located in St. Helens, England.

Crane Pumps & Systems manufactures pumps under the trade names Deming, Weinman, Burks, and Barnes. Pumps are sold to a broad customer base that includes industrial, municipal, and commercial water and wastewater, commercial heating, ventilation and air-conditioning industries and original equipment manufacturers and military applications. Crane Pumps & Systems has facilities in Piqua, Ohio; Bramalea Ontario, Canada and Zhejiang, China.

The Fluid Handling segment employed approximately 5,700 people and had assets of $889 million at December 31, 2008. Order backlog totaled $302.7 million and $242.6 million at December 31, 2008 and 2007, respectively.

Controls

The Controls segment provides customer solutions for sensing and control applications and has special expertise in control solutions for difficult and hazardous environments. It includes five businesses: Barksdale (ride-leveling, air-suspension control valves; pressure, temperature and level sensors), Dynalco (safe instruments and controls for industrial engine monitoring and protection), Azonix (ultra-rugged computers, mobile rugged displays, measurement and control systems and intelligent data acquisition products), Crane Environmental (specialized water purification solutions), and Crane Wireless Monitoring Solutions (wireless sensor networks and covert radio products ).

The Controls segment employed approximately 500 people and had assets of $83 million at December 31, 2008. Order backlog totaled $30.5 million and $35.3 million at December 31, 2008 and 2007, respectively.

Acquisitions

We have completed 13 acquisitions since the beginning of 2004.

During 2008, we completed two acquisitions at a total cost of $79 million in cash and the assumption of $17 million of net debt. Preliminary allocation of these purchase prices resulted in goodwill for the 2008 acquisitions of $48 million.

In December 2008, we acquired all of the capital stock of Friedrich Krombach GmbH & Company KG Armaturenwerke and Krombach International GmbH, both of Kreuztal, Germany. Krombach is a leading manufacturer of specialty valve flow solutions for the power, oil and gas, and chemical markets. Krombachâ€™s 2008 full year sales were approximately $100 million, and the purchase price was $51 million in cash and the assumption of $17 million of net debt. Krombach is being integrated into our Fluid Handling segment.

In September 2008, we acquired all of the capital stock of Delta Fluid Products Limited, a leading designer and manufacturer of regulators and fire safe valves for the gas industry, and safety valves and air vent valves for the building services market, for $28 million in cash. Delta had full year sales of $39 million in 2008 and is being integrated into our Fluid Handling segment.

During 2007, we completed two acquisitions at total cost of $65 million. Goodwill for the 2007 acquisitions amounted to $29 million.

In September 2007, we acquired the composite panel business of Owens Corning, which produces, among other products, high gloss fiberglass reinforced plastic panels used in the manufacture of recreational vehicles. The purchase price was $38 million in cash. The acquired business had $40 million of sales in 2006 and was integrated into the Noble Composites business within our Engineered Materials segment.

In August 2007, we acquired the Mobile Rugged Business of Kontron America, Inc. (â€śMRBâ€ť), which produces computers, electronics and flat panel displays for harsh environment applications. The purchase price was $26.6 million. The acquired business had sales of $25 million in 2006 and was integrated into the Azonix business within our Controls segment.

During 2006, we completed five acquisitions at a total cost of $283 million. Goodwill for the 2006 acquisitions amounted to $148 million.

In January 2006, we acquired substantially all of the assets of CashCode, a manufacturer of bill validators, storage and recycling devices for use in a variety of niche applications in vending, gaming, retail and transportation industries, for $86 million in cash. CashCode had sales of $48 million in 2005. CashCode is located in Concord, Ontario, Canada and Kiev, Ukraine, serving a global marketplace with 75% of its sales outside the United States, of which the majority are in Europe and Russia. CashCode was integrated into our Merchandising Systems segment.

In June 2006, we acquired all of the outstanding capital stock of Telequip for a cash purchase price of $45 million. Telequip, with headquarters in Salem, New Hampshire, was manufacturing coin dispensing solutions since 1974. Telequip provides embedded and free-standing coin dispensing solutions principally focused on applications in supermarkets, convenience stores, quick-service restaurants and self-checkout and kiosk equipment markets. Tele- quipâ€™s coin dispensers have a particularly strong position in automated self-checkout markets. Telequip had total annual sales of $20 million in 2006. Telequip was integrated into our Merchandising Systems segment.

In June 2006, we acquired certain assets of AP, a privately held manufacturer of vending equipment. In September 2006, additional assets of AP were acquired and a second payment made for a total purchase price of $30 million. The acquisition included APâ€™s extensive distribution network, product line designs and trade names, manufacturing equipment, aftermarket parts business, inventory and other related assets. The purchase did not include APâ€™s manufacturing facility located in St. Paul, Minnesota. AP equipment production was consolidated into our Merchandising Systems facility in St. Louis, Missouri. AP had total annual sales of $40 million in 2006.

In September 2006, we acquired all the outstanding capital stock of Noble for a cash purchase price of $72 million. Noble, located in Goshen, Indiana, specializes in the manufacture and sale of premium, high-gloss finished composite panels for use by recreational vehicle manufacturers. Noble had annual sales of $37 million in 2005. Noble was integrated into our Engineered Materials segment.

In October 2006, we acquired all of the outstanding capital stock of Dixie-Narco for a purchase price of $46 million in cash. Dixie-Narco is the largest can/bottle merchandising equipment manufacturer in the world. Dixie-Narcoâ€™s customers are the major soft drink companies; in addition, equipment is marketed to global vending operators. Dixie-Narco had total annual sales of $155 million in 2006. Dixie-Narco was integrated into our Merchandising Systems segment.

During 2005, we completed two acquisitions at a total cost of $9 million. Goodwill for the 2005 acquisitions amounted to $5 million.

During 2004, we completed two acquisitions at a total cost of $50 million. Goodwill for the 2004 acquisitions amounted to $37 million. In January 2004, we acquired P.L. Porter (â€śPorterâ€ť) for a purchase price of $44 million. Porter is a leading manufacturer of motion control products for airline seating and was integrated into the Burbank, California Aerospace facility. Porter holds leading positions in both electromechanical actuation and hydraulic/mechanical actuation for aircraft seating, selling directly to seat manufacturers and to the airlines. Electrically powered seat actuation systems provide motive power and control features required by premium class passengers on competitive international routes. Porter products not only provide passenger comfort with seat back and foot rest adjustment, but also control advanced features such as lumbar support and in-seat massage. In addition to seats installed in new aircraft, airlines refurbish and replace seating several times during an aircraftâ€™s life along with maintenance and repair requirements. Porterâ€™s 2003 annual sales were $32 million. The operations were integrated into our Aerospace & Electronics segment.

Also in January 2004, we acquired the Hattersley valve brand and business together with certain related intellectual property and assets from Hattersley Newman Hender, Ltd., a subsidiary of Tomkins plc, for a purchase price of $6 million. Hattersley branded products include an array of valves for commercial, industrial and institutional construction projects. This business has been integrated into Crane Ltd., which is part of our Fluid Handling segment.

Divestitures

In December 2007, together with our partner, Emerson Electric Co., we sold the Industrial Motion Control, LLC (â€śIMCâ€ť) joint venture, generating proceeds to us of $33 million. Our investment in IMC was $29 million, and we recorded income in 2007 and 2006 of $5.3 million and $5.6 million, respectively.

In April 2006, we completed the sale of the outstanding capital stock of Westad Industri A/S, a small specialty valve business located in Norway. This business had $25 million in sales in 2005. Westad was included in our Fluid Handling segment. In May 2006, we completed the sale of substantially all of the assets of Resistoflex-Aerospace, a manufacturer of high-performance hose and high-pressure fittings located in Jacksonville, FL. This business had sales of $16 million in 2005. Resistoflex-Aerospace was included in our Aerospace & Electronics segment. In December 2004, we sold the Victaulic trademark and UK-based business assets for $15 million in an all cash transaction.

Restructuring Activities

Recent disruptions in the credit markets and concerns about global economic growth for industrial businesses have had a significant adverse impact on financial markets and, to an extent, our operating results in 2008. For example, our Engineered Materials business segment experienced significant declines in operating profit when compared to 2007. This decline reflected substantially lower sales to our traditional recreational vehicle customers, driven largely by the inability of consumers to obtain financing for RV purchases. Similarly, declining vending machine demand resulting from depressed conditions in the North American vending market has put pressure on our operating margins within our Merchandising Systems segment. In our Fluid Handling segment, sales were adversely impacted during the second half of 2008 by slowing orders from short-cycle North American businesses (where we generally deliver product within 90 days after order receipt) and delays of several large valve projects into 2009. In order to align our cost base to current market conditions, during the fourth quarter of 2008, we initiated a broad-based restructuring program that included facility consolidations, severance and other related costs (the â€śRestructuring Programâ€ť), resulting in a pre-tax charge of $40.7 million. We expect to incur additional restructuring charges of approximately $10.7 million during 2009 in connection with this program (total pre-tax charges, upon program completion, of approximately $51.4 million).

During the fourth quarter of 2007, we commenced implementation of a restructuring program designed to further enhance operating margins in the Fluid Handling segment. The planned actions included ceasing the manufacture of malleable iron and bronze fittings at our foundry operating facilities in the UK and Canada, respectively, and exiting both facilities and transferring production to China (the â€śFoundry Restructuringâ€ť). In December 2007, pursuant to this program, we sold our foundry facility in the UK, generating a pre-tax gain of $28 million. As of December 31, 2008, we have recognized $11 million in pre-tax charges in connection with this program and we expect to incur total pre-tax charges, upon program completion, of approximately $14 million.

For additional segment level information related to restructuring activities, you should refer to the information set forth under the caption, â€śManagementâ€™s Discussion and Analysis of Financial Condition and Results of Operationsâ€ť in Part II, Item 7 of this report, as well as in Part II, Item 8 under Note 15, â€śRestructuringâ€ť to the Consolidated Financial Statements.

Competitive Conditions

Our lines of business are conducted under highly competitive conditions in each of the geographic and product areas they serve. Because of the diversity of the classes of products manufactured and sold, they do not compete with the same companies in all geographic or product areas. Accordingly, it is not possible to estimate the precise number of competitors or to identify our competitive position, although we believe that we are a principal competitor in most of our markets. Our principal method of competition is production of quality products at competitive prices in a timely and efficient manner.

Our products have primary application in the aerospace, defense electronics, recreational vehicle, transportation, automated merchandising, petrochemical, chemical and power generation industries. As such, our revenues are dependent upon numerous unpredictable factors, including changes in market demand, general economic conditions and capital spending. Because these products are also sold in a wide variety of markets and applications, we do not believe we can reliably quantify or predict the possible effects upon our business resulting from such changes.

Our engineering and product development activities are directed primarily toward improvement of existing products and adaptation of existing products to particular customer requirements as well as the development of new products. While we own numerous patents, trademarks, copyrights, trade secrets and licenses to intellectual property, none are of such importance that termination would materially affect our business. From time to time, however, we do engage in litigation to protect our intellectual property.

Research and Development

Research and development costs are expensed when incurred. These costs were $153.4 million, $106.8 million and $69.7 million in 2008, 2007 and 2006, respectively, and were incurred primarily by the Aerospace & Electronics segment. Funds received from customer-sponsored research and development projects were $15.5 million, $8.4 million and $8.8 million in 2008, 2007 and 2006 respectively, and were recorded in net sales.

Our Customers

No customer accounted for more than 10% of our consolidated revenues in 2008, 2007 or 2006.

Raw Materials

Our manufacturing operations employ a wide variety of raw materials, including steel, copper, cast iron, electronic components, aluminum, plastics and various petroleum-based products. We purchase raw materials from a large number of independent sources around the world. Although market forces have generally caused increases in the costs of steel and petroleum-based products, there have been no raw materials shortages that have had a material adverse impact on our business, and we believe that we will generally be able to obtain adequate supplies of major raw material requirements or reasonable substitutes at reasonable costs.

CEO BACKGROUND

DONALD G. COOK 10,042
Age 62; Director since August 2005. General, United States Air Force (Retired). Commander, Air Education and Training Command, Randolph Air Force Base, San Antonio, TX from December 2001 to August 2005. Vice Commander, Air Combat Command, Langley Air Force Base, Hampton, VA from June 2000 to December 2001. Vice Commander, Air Force Space Command, Peterson Air Force Base, Colorado Springs, CO from July 1999 to June 2000. Other directorships: Burlington Northern Santa Fe Corporation; Hawker Beechcraft Inc.; USAA Federal Savings Bank.

R. S. EVANS 512,419
Age 64; Director since 1979. Chairman of the Board of Crane Co. since April 2001. Chairman and Chief Executive Officer of Crane Co. from 1984 to 2001. Other directorships: HBD Industries, Inc; Huttig Building Products, Inc.

ERIC C. FAST 1,613,608
Age 59; Director since 1999. President and Chief Executive Officer of Crane Co. since April 2001. President and Chief Operating Officer of Crane Co. from September 1999 to April 2001. Other directorships: Automatic Data Processing Inc.; National Integrity Life Insurance.

During 2008, we completed two acquisitions at a total cost of $79 million in cash and the assumption of $17 million in debt. Specifically, in December 2008, we acquired Friedrich Krombach GmbH & Company KG Armaturenwerke and Krombach International GmbH, (â€śKrombachâ€ť), a leading manufacturer of specialty valve flow solutions for the power, oil and gas, and chemical markets for $51 million in cash and the assumption of $17 million of net debt, and in September 2008, we acquired Delta Fluid Products Limited (â€śDeltaâ€ť), a leading designer and manufacturer of regulators and fire safe valves for the gas industry, and safety valves and air vent valves for the building services market, for $28 million in cash.

Items Affecting Comparability of Reported Results

The comparability of our operating results for the years ended December 31, 2008, 2007 and 2006 is affected by the following significant items:

Restructuring and Related Costs

2008 Actions . During the fourth quarter of 2008, we initiated broad-based restructuring actions to align our cost base to current market conditions which include facility consolidations, headcount reductions and other related costs, (the â€śRestructuring Programâ€ť). At December 31, 2008, we recorded pre-tax restructuring and related charges in the business segments totaling $40.7 million as follows: Aerospace & Electronics $2.0 million, Engineered Materials $19.1 million, Merchandising Systems $13.1 million, Fluid Handling $5.7 million and Controls $0.8 million. The charges include workforce reduction expenses and facility exit costs of $25.0 million and $15.7 million related to asset write-downs.

We expect the 2008 actions to result in net workforce reductions of approximately 700 employees, the exiting of five facilities and the disposal of assets associated with the exited facilities. We are targeting the majority of all workforce and all facility related cost reduction actions for completion during 2009. Approximately 68% of the total pre-tax charge will require cash payments, which we will fund with cash generated from operations. We expect to incur additional restructuring and related charges of $10.6 million during 2009 to complete these actions as follows: Aerospace & Electronics $1.3 million, Engineered Materials $2.0 million and Merchandising Systems $7.3 million We expect recurring pre-tax savings subsequent to completing all actions to approximate $51 million annually.

2007 Actions. During the fourth quarter of 2007, our Fluid Handling segment commenced implementation of a restructuring program designed to further enhance operating margins through ceasing the manufacture of malleable iron and bronze fittings at foundry operating facilities in the UK and Canada, respectively, and exiting both facilities and transferring production to China (the â€śFoundry Restructuringâ€ť). The program primarily includes work- force reduction expenses and facility exit costs, all of which are expected to be cash costs. In December 2007, we recognized workforce reduction charges of $9 million and, also in December 2007, pursuant to this program, we sold our foundry facility in the UK, generating a pre-tax gain of $28 million. We expect to incur total pre-tax charges, upon program completion, of approximately $14 million. The Foundry Restructuring is expected to be substantially completed by the middle of 2009. We expect pre-tax savings to approximate $7 million annually.

Environmental Charge

For environmental matters, we record a liability for estimated remediation costs when it is probable that we will be responsible for such costs and they can be reasonably estimated. Generally, third party specialists assist in the estimation of remediation costs. The environmental remediation liability at December 31, 2008 and 2007 is substantially all for the former manufacturing site in Goodyear, Arizona (the â€śSiteâ€ť) discussed below.

The Site was operated by UniDynamics/Phoenix, Inc. (â€śUPIâ€ť), which became an indirect subsidiary of ours in 1985 when we acquired UPIâ€™s parent company, UniDynamics Corporation. UPI manufactured explosive and pyrotechnic compounds, including components for critical military programs, for the U.S. government at the Site from 1962 to 1993, under contracts with the Department of Defense and other government agencies and certain of their prime contractors. No manufacturing operations have been conducted at the Site since 1994. The Site was placed on the National Priorities List in 1983, and is now part of the Phoenix-Goodyear Airport North Superfund site. In 1990, the U.S. Environmental Protection Agency (â€śEPAâ€ť) issued administrative orders requiring UPI to design and carry out certain remedial actions, which UPI has done. Groundwater extraction and treatment systems have been in operation at the Site since 1994. A soil vapor extraction system was in operation from 1994 to 1998, was restarted in 2004, and is currently in operation. On July 26, 2006, we entered into a consent decree with the EPA with respect to the Site providing for, among other things, a work plan for further investigation and remediation activities at the Site. We recorded a liability in 2004 for estimated costs through 2014 after reaching substantial agreement on the scope of work with the EPA. At the end of September 2007, the liability totaled $15.4 million. During the fourth quarter of 2007, we and our technical advisors determined that changing groundwater flow rates and contaminant plume direction at the Site required additional extraction systems as well as modifications and upgrades of the existing systems. In consultation with our technical advisors, we prepared a forecast of the expenditures required for these new and upgraded systems as well as the costs of operation over the forecast period through 2014. Taking these additional costs into consideration, we estimated our liability for the costs of such activities through 2014 to be $41.5 million as of December 31, 2007. During the fourth quarter of 2008, based on further consultation with our advisors and the EPA and in response to groundwater monitoring results that reflected a continuing migration in contaminant plume direction during the year, we revised our forecast of remedial activities to reflect an increase in the number of extraction systems and monitoring wells in and around the Site, among other things. Our revised liability estimate of $65 million, which is included in accrued liabilities and other liabilities in our consolidated balance sheet, resulted in an additional charge of $24 million in December 2008.

On July 31, 2006, we entered into a consent decree with the U.S. Department of Justice (â€śDOJâ€ť) on behalf of the Department of Defense and the Department of Energy pursuant to which, among other things, the U.S. Government reimburses us for 21 percent of qualifying costs of investigation and remediation activities at the Site. As of December 31, 2008, we have recorded a receivable of $14 million for the expected reimbursements from the U.S. Government in respect of the aggregate liability as at that date.

Asbestos Charge

With the assistance of outside experts, during the third quarter of 2007, we updated and extended our estimate of our asbestos liability, including the costs of settlement or indemnity payments and defense costs relating to currently pending claims and future claims projected to be filed against us through 2017. Our previous estimate was for asbestos claims filed through 2011. As a result of this updated estimate, we recorded an additional pre-tax provision of $390.2 million during the third quarter of 2007 (this amount includes a corresponding insurance receivable).

Civil False Claims Settlement

During the third quarter of 2007, we recorded a $7.6 million charge related to a civil false claims proceeding by the U.S. Government, arising out of allegations that certain valves sold by our Crane Valves North America unit (â€śCVNAâ€ť) to private customers that ultimately were delivered to U.S. military agencies did not conform to contractual specifications relating to the place of manufacture and the origin of component parts. The allegations originated with a qui tam complaint filed under seal by a former CVNA employee. The Civil Division of the Department of Justice (â€śDOJâ€ť) ultimately intervened in that case, and on March 31, 2007, filed a complaint against us in the United States District Court for the Southern District of Texas seeking unspecified damages for violations of the False Claims Act, and other common law claims. The complaint alleged that CVNA failed to notify the correct U.S. military agency when our manufacturing location for Mil-Spec valves listed on the Qualified Products List was moved from Long Beach, California to Conroe, Texas in 2003. As a result, the complaint alleged that the valves manufactured in Texas were not properly listed on the Qualified Product List as required by the contract specifications.

We received a letter from the Department of the Navy on February 14, 2007, conveying the Navyâ€™s concerns about the Qualified Products List allegations raised by the DOJ. The Department of the Navy advised us that, if true, these allegations could potentially result in us and our subsidiaries and affiliates being suspended and/or debarred from doing business with the U.S. Government.

We cooperated with the Governmentâ€™s investigation of these matters and executed a settlement agreement with the DOJ providing for, among other things, the payment of $7.5 million to the United States and $125,000 to pay the legal fees of the former employee who filed the qui tam complaint. In addition, we negotiated an administrative agreement with the Department of the Navy for a term of three years pursuant to which we have implemented certain changes to our compliance programs and report to the Navy on a quarterly basis. These agreements were executed and became effective on July 27, 2007. We acknowledged the failure to notify the Navy and update the Qualified Products List but we denied that this omission violated the False Claims Act. The failure to notify the Navy was unintentional and there was no misconduct by our personnel. We decided to settle this matter to avoid the risks of costly and protracted legal proceedings.

Divestiture

In December 2007, together with our partner, Emerson Electric Co., we sold the Industrial Motion Control, LLC (â€śIMCâ€ť) joint venture, generating proceeds to us of $33 million and an after-tax gain of $5.8 million. Our investment in IMC was $29 million and we recorded income in 2007 and 2006 of $5.3 million and $5.6 million respectively.

Repatriation of Foreign Earnings

During the fourth quarter of 2007, we concluded that our cash balances overseas were in excess of our projected future needs outside the U.S. As a result, we established a $10.4 million deferred tax liability related to the estimated additional U.S. federal and state income taxes due upon the ultimate repatriation of $194 million of such cash balances.

2007 Compared with 2006

Sales in 2007 increased $362 million, or 16%, to $2.619 billion compared with $2.257 billion in 2006. The sales increase was primarily due to core business growth of $163 million (7%) and revenue from net acquisitions and dispositions of $134 million (6%). Sales growth also included $65 million (3%) from favorable foreign exchange. The Aerospace & Electronics segment reported a sales increase of $63 million, or 11%. Excluding Resistoflex-Aerospace which was divested in May 2006, segment sales were up 12%. The Aerospace Group had strong commercial OEM (Original Equipment Manufacturer) sales and aftermarket revenue. The Electronics Group experienced a 5% sales increase year over year. In the Engineered Materials segment, demand for fiberglass-reinforced panels from the recreational vehicle and transportation trailer markets declined 9% due to lower industry demand. The Merchandising Systems segment showed a $130 million revenue increase in 2007 mainly from the four acquisitions made in 2006. The Fluid Handling segmentâ€™s sales increased $136 million, or 14%, including a net decline of $10 million related to disposed businesses. Excluding dispositions, this segmentâ€™s sales increased $147 million, or 15%, $97 million (10%) from core growth, reflecting the strong conditions in general industrial markets and $50 million (5%) from favorable foreign exchange.

Total segment operating profit was $69 million, or 24% higher, in 2007 when compared to 2006. Total Fluid Handling segment operating profit was $52 million higher, or 49%, in 2007 compared to the prior year. As a percent of sales, total segment operating margins increased to 13.5% in 2007, compared to 12.6% in 2006. The increase over the prior year was driven primarily by improvement in the Fluid Handling and Merchandising Systems segments.

MANAGEMENT DISCUSSION FOR LATEST QUARTER

This Quarterly Report on Form 10-Q contains information about us, some of which includes â€śforward-looking statementsâ€ť within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are statements other than historical information or statements about our current condition. You can identify forward-looking statements by the use of terms such as â€śbelieves,â€ť â€ścontemplates,â€ť â€śexpects,â€ť â€śmay,â€ť â€ścould,â€ť â€śshould,â€ť â€śwould,â€ť or â€śanticipates,â€ť other similar phrases, or the negatives of these terms.

We have based the forward-looking statements relating to our operations on our current expectations, estimates and projections about us and the markets we serve. We caution you that these statements are not guarantees of future performance and involve risks and uncertainties. In addition, we have based many of these forward-looking statements on assumptions about future events that may prove to be inaccurate. For example, in response to a weakening global economy, we are critically reviewing our cost structure in an effort to better position our operations to accommodate a potential decline in demand for our products and services. Considering the current uncertainty in estimating both the potential costs related to such efforts as well as projected levels of efficiencies that we expect to achieve, our actual outcomes and results may differ materially from what we have expressed or forecast in the forward-looking statements. There are a number of other factors that could cause actual results or outcomes to differ materially from those addressed in the forward-looking statements. The factors that we currently believe to be material are detailed in Part II, Item 1A of this Quarterly Report on Form 10-Q and in our Annual Report on Form 10-K for the fiscal year ended December 31, 2007 filed with the Securities and Exchange Commission and are incorporated by reference herein. Additional risks and uncertainties not currently known to us or that we currently do not deem to be material also may materially adversely affect our business, financial condition and operating results.

Reference herein to â€śCraneâ€ť, â€śweâ€ť, â€śusâ€ť, and, â€śourâ€ť refer to Crane Co. and its subsidiaries unless the context specifically states or implies otherwise. References to â€ścore businessâ€ť or â€ścore salesâ€ť in this report include sales from acquired businesses starting from and after the first anniversary of the acquisition, but exclude currency effects. Amounts in the following discussion are presented in millions, except employee, share and per share data, or unless otherwise stated.

Our strategy is to grow the earnings of niche businesses with leading market shares, acquire companies that fit strategically with existing businesses, aggressively pursue operational and strategic linkages among our businesses, build a performance culture that stresses continuous improvement and a committed management team whose interests are directly aligned with those of the shareholders and maintain a focused, efficient corporate structure.

Outlook

Recent disruptions in the credit markets and concerns about global economic growth for industrial businesses have had a significant adverse impact on financial markets and, to an extent, our operating results through the first nine months of 2008. For example, during the three and nine-month periods ending September 30, 2008, our Engineered Materials business segment has experienced significant declines in operating profit when compared to the same periods last year. This decline reflects substantially lower volumes to our traditional recreational vehicle customers, driven largely by the inability of consumers to obtain financing for RV purchases. Similarly, declining vending machine demand resulting from depressed conditions in the North American vending market has put pressure on our operating margins within our Merchandising segment. In response to these unfavorable market conditions, during the past six months, we have taken significant steps to reduce costs in both our Engineered Materials and Vending Solutions businesses, including reducing headcount by 32% and 16%, respectively. In our Fluid Handling segment, while demand from the global chemical, pharmaceutical and energy industries remained firm, sales were adversely impacted during the third quarter by slowing orders from short-cycle North American businesses and delays of several large valve projects into the fourth quarter. Continued weakness in short-cycle North American businesses and/or further delays in large valve projects may put further pressure on operating margins in the Fluid Handling segment.

Our Aerospace & Electronics segment has also experienced a significant decline in operating profit during the three and nine month periods ending September 30, 2008 when compared to the same periods last year. These declines were driven by substantially higher engineering expense in the Aerospace Group related to the development of new products for the Boeing 787 and Airbus A400M programs. Reflecting changes in certain requirements requested by our customers, there exist potential engineering cost recoveries to partially offset the unfavorable impact of continued development expenses (the timing and amounts of which are uncertain). Spending will likely remain at high levels until key test flights are completed in 2009. In addition, while the decline in operating profit for this segment is almost entirely due to the increase in engineering expenses, further deterioration in airline industry market conditions could have an unfavorable impact by, for example, reducing higher margin aftermarket product sales.

Reflecting on our operating results for the third quarter 2008 and our expectation of a potentially more difficult operating environment, we are taking further steps to reduce our cost structure across all business segments. These initiatives could result in a fourth quarter pretax charge of up to $25 million (primarily non-cash) related to reductions in headcount and consolidation of several plants. Although we currently expect the savings from these initiatives to exceed the amount of the potential charge, we will continue to review our estimates as we evaluate our cost structure and finalize our plans during the fourth quarter.

Results from Operations

Third quarter of 2008 compared with third quarter of 2007

Third quarter 2008 sales decreased $21.4 million, or 3.2%, over the third quarter of 2007. Core business sales for the third quarter declined approximately 4.2%, or $27.9 million. Acquired businesses (the Composite Panel business of Owens Corning and Mobile Rugged business of Kontron America, Inc.), net of $3.5 million of lost sales resulting from divestitures, contributed 0.6% growth, or $3.8 million. The impact of currency translation on sales increased reported sales by approximately 0.4%, or $2.7 million, as the U.S. dollar was weaker against other major currencies in the third quarter of 2008 compared to the third quarter of 2007. Net sales related to operations outside the United States were 41.9% and 39.0% of total net sales for the three-month periods ended September 30, 2008 and 2007, respectively.

Operating profit was $54.6 million in the third quarter 2008 compared to an operating loss of $312.6 million in the comparable period of 2007. The operating loss in the third quarter 2007 included a $390.2 million provision to update and extend the time horizon of our estimate of asbestos liability from 2011 to 2017 (see Note 9 in the financial statements under Item 1 included in this Report). In addition, the third quarter of 2008 reflected substantially weaker performance in our Engineered Materials and Aerospace & Electronics segments when compared to the same period in 2007.

The third quarter 2008 sales increase of $0.7 million reflected a sales increase of $3.8 million in the Aerospace Group and a decrease of $3.1 million in the Electronics Group. The segmentâ€™s operating profit decreased $12.2 million, or 52.8%, in the third quarter of 2008 when compared to the same period in the prior year. The decline in operating profit was driven by substantially higher engineering expense in the Aerospace Group, which was $32.5 million in the third quarter of 2008 compared to $17.8 million in the third quarter of 2007. The increase in engineering expense is related to our investments in the Boeing 787 and Airbus A400M programs. Aerospace Group sales of $100.9 million increased $3.8 million, or 4.0%, from $97.1 million in the prior year period. This increase is attributable to continued strong demand in the aerospace industry, and is related to original equipment manufacturer (â€śOEMâ€ť) products. Operating profit declined by $12.9 million in the third quarter of 2008, compared to the third quarter of 2007 which was due to the aforementioned $14.7 million increase in engineering expenses and higher OEM sales mix.

Electronics Group sales of $58.8 million decreased $3.1 million, or 5.1%, due primarily to lower sales in the groupâ€™s Custom Power business. Operating profit increased by $0.7 million in the third quarter of 2008 when compared to the third quarter of 2007 which was driven by favorable sales mix in the Standard Power business, offset by deleverage associated with the aforementioned volume decline in the Custom Power business.

We will start off our call with a few prepared remarks after which we will respond to questions. Just as a reminder, the comments we make on this call may include some forward-looking statements. We would refer you to the cautionary language at the bottom of our earnings release and also in our annual report, 10-K, and subsequent filings pertaining to forward-looking statements.

Also during the call, we will be using some non-GAAP numbers which are reconciled to the comparable GAAP numbers in the table at the end our press release which is available on our website at www.craneco.com in the Investor Relations section.

As another reminder, we will hold our annual investor conference on February 19 in New York City from 8:30 until noon. Eric, Tim, and the Group Presidents will be sharing their outlook and strategies for 2009. Please contact me if you would like to attend.

Now, let me turn the call over to Eric.

Eric Fast

Thank, Dick. Last night we reported a fourth quarter 2008 net loss of $8.3 million or $0.14 per share, compared with fourth quarter 2007 net income of $45.2 million or $0.74 per share. Fourth quarter 2008 results were adversely impacted by an after-tax restructuring charge of $25.7 million, $0.44 per share, and an after-tax environmental provision of $15.8 million, $0.27 per share.

Excluding special items in both years, fourth quarter net income was $33.2 million or $0.56 per diluted share, compared to $47.3 million or $0.77 per diluted share in the fourth quarter of 2007. Full year earnings per share, excluding special items in both years were $2.93 in 2008, as compared to $3.19 in 2007.

I believe the company is well positioned given the current credit crisis and sharp downturn in economic activity. Over the past several years, we have been very disciplined in our acquisitions and allocation of capital which has resulted in a continuing strong balance sheet with excellent liquidity.

As you saw in our press release, we ended the year with $232 million in cash; a $300 million committed revolving facility, and debt maturities that are far out in the future.

While the economic decline clearly accelerated in the fourth quarter, several of our short-cycle businesses, particularly Engineered Materials and Vending began to feel the slowdown earlier in the year, and we have taken significant steps to reduce costs in those businesses.

Overall, employment levels were reduced 34% in Engineered Materials and 16% in North American Vending and general expense reduction programs were implemented.

With the accelerated decline in economic activity in the fourth quarter reflected in our core sales decline of 7%, we increased the size of our Restructuring Program and initiated general spending reductions across the company. With the $37 million in savings from the Restructuring Program, expected reductions in Aerospace Engineering from the completion of key milestones on several large development programs and our overall cost containment efforts, savings in 2009 will approach $75 million.

Our earnings per shares guidance of $2.10 to $2.40 per share reflects the considerable uncertainty in the economy and the end markets we serve. However, with strong discipline in our working capital management, we expect free cash flow to exceed the $146 million achieved in 2008.

While executing on the Restructuring Program, our focus in 2009 will be winning in the marketplace. Our plans are to maintain our customer-facing activities, continue to drive our operational excellence programs, accelerate the introduction of new products to win market share, and selectively and carefully make acquisitions.

We have continued to invest in our sales and manufacturing capabilities in Fluid Handling with our new regional sales office in Dubai, we have increased our customer focus in the Middle East, and deployed additional sales personnel in Asia and CIS as well.

Our presence in Eastern Europe was enhanced by the December '08 acquisition of the Krombach group, a leading manufacturer of leading manufacturer of specialty valve flow solutions for the power, oil and gas, and chemical markets, and provides our expanded global sales force with additional products. Krombach greatly expands our capability to make large valves, and we now have production capability for valves up to 11 feet in diameter.

In Merchandising Systems, we are looking to take market share with our successful glass front machines at the major bottlers and the new merchant snack machine with full line operators. The new Currenza c2 is being introduced this spring, and will be our new global coil validation offering.

Within our Aerospace business during the fourth quarter we've reached key milestones for the 787 program, including delivery of initial hardware and software for first flight, and expect to complete a version for commercial application during the second quarter.

We do expect that there will be modifications to the products we have delivered as information from the test flight and other analysis is completed. However, absent new major change requests, development spending will be reduced substantially in 2009.

No doubt, 2009 will be an extremely challenging year with considerable uncertainties. However, I am confident in our ability to execute our plans successfully. Now, let me turn the call over to Tim MacCarrick, who will provide additional details on our fourth quarter results, strong liquidity position and cost focus in 2009.

Tim MacCarrick

Thank you, Eric. Turning now to specific segment comments, including operating profit results before restructuring charges which compare the fourth quarter of 2008 with 2007. Aerospace Group sales of $93.6 million decreased $1.7 million or 2% from $95.3 million in the prior-year period.

OEM sales declined 4% compared to the fourth quarter 2007, and after-market sales were flat on a comparable basis. The OEM after-market mix was 59% to 41%, compared to last year's fourth quarter of 60% to 40%.

Operating profit in Aerospace declined $3.8 million, primarily reflecting the $6.8 million increase in engineering expense due to the heavy investments in the 787, and the A400M and lower OEM sales from the Boeing strike, partially offset by cost reductions.

In the fourth quarter of 2008, our Aerospace engineering spending was $28 million, compared to third quarter 2008 spending of $33 million and $21 million in the fourth quarter of 2007.

This engineering spend, all of which is expensed, is due to the heavy investment in 787 and A400M programs. The decline in engineering spending from the third to the fourth quarter reflects the delivery of key parts of the 787 and A400M programs, and the scaling back of the number of contract engineers, overtime, expediting in other costs.

Our Aerospace engineering spending was about 27% of sales in 2008, and we anticipate, this should begin to decline in the second half of 2009, during a transition year in which we expect the 787 to commence test flights. This would provide us with about a $50 million pretax tailwind to our operating profit from 2008 to 2010, based on 2008 sales levels. We expect that we will realize about half that benefit in 2009, which will help mitigate the effects of expected lower aftermarket sales.

Our engineering spending on the Boeing 787 and the A400M accounted for about 65% of our engineering expense of $111 million this year. As we mentioned on previous calls, we are in dialogue with certain customers concerning cost recoveries for engineering work, and those discussions are continuing.

Electronics Group sales of $61 million decreased $5 million or 8%, largely because of lower sales in our power business. As a result, Electronics Group operating profit declined $3 million, compared to the fourth quarter of 2007. Orders in the fourth quarter exceeded sales by $3.6 million and backlog was up 12% over December 2007.

In the fourth quarter, Engineered Materials core sales decreased $33 million or 45%, reflecting substantially lower volumes and further deterioration in our end markets from that experienced in the third quarter.

In the fourth quarter of 2008, we experienced a 72% decline in sales to our recreational vehicle customers, off considerably from the 49% decline in the third quarter, a 30% decline in sales to transportation-related customers, consistent with reduced trailer build rates and a 19% decline in sales to our building products customers.

Engineered Materials posted an operating loss of $0.8 million, compared to an operating profit of $8.6 million in the fourth quarter of 2007. As Eric mentioned, we have reduced employment levels in the last year by 34%, and in addition, a significant part of the Restructuring Program relates to facility rationalization in Engineered Materials.

Further cost reduction efforts are being implemented, reflecting, what are expected to be ongoing depressed markets.

The difficult economy has impacted demand for both our Vending and Payment Systems products. As a result of this slowing demand, particularly during the second half of the year, we have reduced employment levels by about 14%, compared with the beginning of 2008.

For the full year 2008, Merchandising Systems operating profit was $45 million, consistent with our February 2008 guidance. Our full-year 2008 margin of 11.2% exceeded our guidance of 10.7%.

Fluid Handling, which represents 45% of Crane's total sales, had a slight increase in operating profit, despite a $22 million reduction in sales. Core sales were essentially flat as the fourth quarter sales decrease was primarily driven by a $32 million of unfavorable foreign currency translation, partially offset by $11 million of sales from the Delta Fluid Products and Krombach acquisitions.

I would note that Fluid Handling operating margins in the first half were extremely strong, exceeding 15% in both the first and second quarters. As we said on the third-quarter conference call, we expected fourth-quarter operating profit to increase from third quarter levels as we cleared a number of delayed shipments.

Our fourth quarter operating profit increased $3.9 million or 11% compared to the third quarter. Margins also improved to 13.9% in the fourth quarter of 2008 from 11.9% in the third quarter of 2008, and 12.7% in the fourth quarter of 2007, driven by pricing discipline, productivity and favorable sales mix.

For the full year 2008, Fluid Handling operating profit was $165 million, exceeding our February 2008 guidance of $162 million. Our full year 2008 margin of 14.2% also exceeded our guidance of 13.2%.

In December 2007, we announced our intention to close two foundries which resulted in the shutdown of our Ipswich, England plant last June, and we expect to close our Bradford, Canada facility in the first quarter of 2009.

These are important steps to increase our low cost country sourcing of castings, and drive profitability in 2009. We previously disclosed that these actions would favorably affect margins by approximately 75 basis points in 2009. Fluid Handling backlog increased $60 million over December 2007, and includes $57 million associated with the Krombach and Delta Fluid acquisitions in 2008.

We continue to see certain customers pushing out shipment dates. Demand is trending lower as chemical companies have announced substantial layoffs and temporary or permanent closure of facilities; and the oil and gas industries are slowing as the price of energy has declined substantially. We've also seen demand moderating for valves for the pharmaceutical, building products and services industries, as well as at Crane Supply in Canada.

In light of further deterioration in the US and global economy and its impact on Crane's end markets during the fourth quarter; we expanded the scope and size of the Restructuring Program, resulting in a charge of $40.7 million pretax.

The restructuring actions reflect a broad-based program to align the company's cost base to market conditions, and include several facility consolidations, severance and other related costs.

Certain actions involved in this program are confidential, highly sensitive, and have not yet been communicated to various parties, and accordingly, further details cannot be shared on this call. However, we will provide details at our investor conference on February 19th.

We expect to record an additional charge in 2009 of approximately $15 million pretax, related to the Restructuring Program. Savings associated with the Restructuring Program actions are expected to be $37 million in 2009, and on an annualized basis, should exceed $50 million.

The restructuring program, together with an anticipated reduction in Aerospace engineering spending, and other ongoing general cost reduction efforts will result in pretax year-over-year savings approaching $75 million in 2009.

Core revenue for 2009 is expected to decline approximately 7% with lower demand anticipated across each of the five business segments. The wide range of our 2009 earnings per share guidance of $2.10 to $2.40 reflects considerable uncertainty about the global economy.

The guidance reflects headwinds from pension expense of $20 million and foreign exchange of $28 million, and assumes an estimated annual tax rate of approximately 30%. The guidance also includes the previously mentioned additional charge in 2009 of approximately $15 million pretax related to the Restructuring Program, and integration costs associated with the Krombach acquisition.

The guidance further assumes that development activities in connection with the current design of the Boeing 787 brake control system will be substantially completed in the spring of 2009, resulting in a decrease in Aerospace engineering spending.

I would note that our earnings in the first half of 2009 are expected to be substantially lower than the second half of the year, reflecting the very difficult current economic conditions, and because the full benefit of the cost savings initiatives, restructuring efforts and the anticipated reduction in Aerospace engineering spending will not be realized until the latter part of 2009. We will provide additional details on this guidance at our Investor Day in February.

The fourth quarter tax rate before special items was 20% compared to 24% in the fourth quarter of 2007, driven by the entire 2008 impact of the R&D tax credit, which was recorded in the fourth quarter of 2008.

For the year, the tax rate before special items was 29% in both 2007 and 2008. Our balance sheet remained strong, and we ended the quarter with $232 million in cash. We have no significant near-term debt maturing, as half of our long-term debt of $398 million is due in 2013 and the other half is due in 2036.

On a full-year basis, 2008 cash flow provided by operating activities was $191 million. This compares to $233 million in 2007, which was favorably affected by an asbestos-related insurance receipt of $32 million.

However, cash flow before asbestos-related payments, net of insurance recoveries was $249 million in 2008, compared to $243 million in 2007. Our 2008 free cash flow of $146 million exceeded our October guidance of $130 million.

We remain sharply focused on cash flow from operations during this time of economic uncertainty through continued diligence on credit, collections and inventory management. We anticipate that our capital spending will be substantially reduced in 2009 compared with the $45 million spent in 2008, and we will provide a more precise estimate at our Investor Day.

Now back to you, Dick.

Richard Koch

Thank you, Eric and Tim. This marks the end of our prepared comments. Operator, we are now ready to take questions.